Last week, 2K Sports announced that it would raise the price of NBA 2K21 by $10 — from $59.99 to $69.99 — for next-generation video game consoles. To see all the bells and whistles on PlayStation 5 and Xbox Series X, consumers will need to pay a little more than they did the year before. The announcement caused famously opinionated game consumers to erupt on social media and online forums. Many wondered out loud if the cost of AAA console video games, after remaining constant for the last 15 years, could be going up across the board.
The answer is almost certainly yes.
But it’s not all bad news. Like so many things about this new console generation, it’s complicated. In fact, the increase in the cost of AAA console video games is only one part of a much bigger story. Pricing is tactical. Launching a new console requires strategy. So let’s talk strategy.
Gaming by the pound
Video games are, on a per-hour-of-entertainment-value basis, one of the cheaper forms of entertainment. A $60 game, enjoyed over eight to 20 hours on the low end, is still a better value than a movie ticket. The economics don’t change all that much when you bump it up to $70.
The contrast is even more stark when you realize that the cost of a movie ticket has been steadily increasing over the last 15 years, while AAA video games all cost the same. Even your Netflix subscription costs more it did just a few years ago.
When you look at the density of modern video games — the graphical fidelity, the multiplayer modes, the open-world systems — games have actually been getting cheaper for consumers over the last 15 years.
A study by author and game designer Raph Koster in 2018 shows the cost to make a AAA video game going up dramatically over time. But when you break that same data down to the cost to produce a single megabyte of that game, consumers are getting a deal. The raw bits that make up the games you love are cheaper than ever. Of course, higher resolutions don’t equal more fun. But they do require labor to create, and labor has value, so according to Koster’s analysis, the price of the work you consume is actually going down.
Meanwhile, the cost of making AAA video games is only rising.
We called up Yoshio Osaki, the president and CEO of IDG Consulting, for some additional perspective. In his role as a consultant with many game studios, publishers, and console manufacturers, he’s privileged to data that you and I will never get to see. While he can’t get into specifics, he was able to talk about how much it costs to actually make a modern video game.
In 2005, a AAA developer making a top-10 title — Electronic Arts developing the next Madden, for instance — was spending somewhere between $25 million and $35 million.
“But let’s say you’re a more reasonable, cost-rational development studio,” Osaki said. “Now [in 2020], for that same [top-10] title, you’re looking at development costs somewhere between $75 [million] to $100 million. Some folks are spending $100 million to $150 million depending on what studio, what genre, what IP you’re looking at.”
Publishers have tried multiple ways to amortize that expense over the life of a video game. One way is with collector’s editions or “digital deluxe” editions, which cost more than the standard $59.99. Another way is by changing the consumer experience. First came microtransactions. Bethesda’s infamous $2.50 horse armor for The Elder Scrolls 4: Oblivion debuted in 2006, paving the way for purchases of season passes and incremental add-ons. The past 15 years have also given rise to the “looter shooter,” games like Destiny and Tom Clancy’s The Division, that ask players to basically live inside a single game for years at a time, often to the exclusion of other titles.
“What we’re seeing there is [console consumers] may not be buying five to eight games per year,” Osaki said. “They might be buying only two to three games per year — maybe maximum of three to four games per year — but they’re spending more money and time in each of those game experiences.”
But even as individual games earn developers and publishers more money, the cost of the labor required to make those games has also increased.
“The per-employee cost — whether you’re [a] designer, developer, an engineer, QA, audio — across the board, it’s generally trended up,” Osaki said. “Part of that is the Bay Area, and certain parts of the country, and certain parts of the world where labor costs have just gone up a lot.”
Another factor, however, is the working environment itself. When you’re asking people to spend weeks or months crunching — working overtime on a top-tier game — they’re deserving of those higher salaries at the very least.
A post-COVID economy
While games have stayed at $60 for 15 years, inflation hasn’t slowed down for anyone. A loaf of bread and a gallon of milk cost more today than they did in 2005. Video games soon will, too.
Is $70 unfairly high? The U.S. Bureau of Labor Statistics says that $59.99 in January 2005, when adjusted for inflation, is the same as $81.15 in January 2020. So, by that measure, $79.99 doesn’t seem unfair on its face. A cynic might say that console gamers are actually getting a deal.
However, according to the Pew Research Center, the purchasing power of the average American has stagnated for decades. Despite increases to the minimum wage — both on the federal and state levels — purchasing power has hardly budged in 40 years. That could put $70 video games out of reach for many consumers. Pile on the fact that we’re experiencing rising income inequality, as well as political and social upheaval — not to mention the global pandemic, which has led to historic rates of unemployment — and increasing the price of video games feels like adding insult to injury.
Shifting from tactics to strategy, said Osaki, game makers have a much bigger perspective of the world of gaming. It’s not just about selling console games.
Osaki said that the addressable market for next-generation video game consoles is about 100 million consumers. Meanwhile, the PC gaming market is more like 500 million to 600 million consumers. The mobile gaming market, on the other hand, is upward of 1.5 billion consumers.
Ultimately, console games are just a small piece of the pie. Maybe that first slice — the launch sales for this next generation of consoles — won’t be quite as big as it was with the launch of the previous generation of consoles. That’s still OK, because it’s a lucrative piece of the gaming pie. Why not bump up the price and make it a little bigger?
Working in the publisher’s favor is the fact that not only do console games command a premium price tag, but that consumers are willing to pay it.
Osaki said that console consumers tend to be less “price-sensitive” than mobile gamers, and even a lot of PC gamers. The fact is that Nintendo, PlayStation, and Xbox players show up year after year to buy the newest games at full price. He expects that to happen with the next generation of consoles as well, $69.99 price tag be damned.
Another factor working in the publisher’s favor, Osaki says, is that the pandemic may actually be helping to broaden the audience for console games.
“Because of COVID — and the impact of COVID and post-COVID — the anti-social stigma attached to gaming is getting erased before our very eyes,” Osaki said. “COVID has accelerated a lot of the trends that we were foreseeing a few years ago, and even after people can go back outside again, and when there’s a vaccine, I think gaming overall has become a much more acceptable mainstream behavior within society, and within pop culture more generally.”
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Of course, the current console generation left the major players in very different positions in the overall market. And that disparity may actually be working in consumers’ favor.
“PS4 beat Xbox One in the current generation within the confines of the console market — in terms of market share, unit sales, installed base, etc., etc.,” Osaki said. “And, with Xbox, they also have the power of the overall Microsoft corporate umbrella.
“So if, God forbid, tomorrow Xbox went away, that would be bad for all of us gamers,” Osaki continued, “but Microsoft would still be OK. Whereas if, God forbid, PlayStation and Sony Interactive Entertainment went away tomorrow, Sony overall as a business and as a corporation — as a publicly traded company, as a going concern — they would be much more at risk. So you look at it from that standpoint, financially, and you also look at the fact that PS4 was much more successful on a global scale versus Xbox One, and you say that, in a weird way, Microsoft has one strategic advantage over Sony right now, which is: They can actually rewrite the playbook.”
Osaki said that that’s why you’re seeing Microsoft doubling down on its Xbox Game Pass subscription offering. Why pay $59.99 or $69.99 for individual games when you can play a library of console-exclusive, AAA titles for a much lower monthly fee?
That’s also why you’re seeing Microsoft promoting pro-consumer features like Smart Delivery, which guarantees that games you buy for the Xbox One will work on the Xbox Series X. It allows consumers to purchase the games they want to play now, and opt into a next-generation video game console at a later date without having to buy the same games over again.
Microsoft is pulling out all the stops, because it has far less to lose this time around than Sony does. The same can be said as it relates to publisher Take-Two. Its NBA 2K franchise won’t support Smart Delivery, so if you want to play NBA 2K21 on current-generation and next-generation consoles, you’re going to have to buy it twice — once for $59.99, and another time for $69.99.
Next-generation consoles are going to feature lots of technical innovation. Ray tracing and 4K gaming for days. They’re going to feature lots of economic innovation as well, and sometimes that innovation hurts your pocketbook. But, as Microsoft is showing in the lead-up to its holiday launch, it doesn’t always have to.
However it shakes out, it’ll be up to the market to decide if they want to play the game ... or not.